This paper links the supply of investment goods with the use of capital services in a model of global production. By lowering prices of imported investment goods, trade liberalization lowers costs for producers that use capital services. Capital incomes rise relative to labor as exports in each country reallocate towards its more capital-intensive mix of industries. These forces are quantitatively important. Welfare gains from trade are twice as high as models where capital is a primary factor in fixed supply, and changes in trade costs between 1997-2007 explain one-quarter of the decline in the global labor share.

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